I freaked out, then I saw this!!!

Could the Turkish crisis derail the whole global economy? This one chart says no.

Flying back in to Greece, I’m thinking, “Great. Wouldn’t you know it. The wheels are coming off in Turkey, the whole region is about to go up in flames, all before I’ve even had my first glass of ouzo.”

If you failed geography, Turkey and Greece are neighbours. And Turkey is going down in a flaming ball of debt and bad life choices.

The world is panicking about it. That’s the thing about the global economy these days. It’s all inter-connected. It’s like a giant Jenga set. Some pieces are more important than others, but you never know which one is going to bring the whole tower tumbling down on top of you.

So could it be Turkey?

I was plugging in to the global sense of panic. I was losing sleep. But then I found one chart that put everything back in perspective.

But let’s back up a bit first.

In case you missed it, Turkey’s currency, the Lira, is going to crap. It’s dropped off a cliff and is now down a gut-wrenching 45% since the start of the year.

To put that in perspective, the Argentinian Peso – that perma-cluster-fuk of a currency is only down 38%, so things are bad.

Now, a collapsing currency isn’t necessarily bad news. It makes your exports cheaper and when the Aussie dollar falls, we actually get an economic boost most of the time.

The exception though is when you’ve borrowed lots of money and it’s denominated in other currencies.

So imagine I owed someone US$100. Right now that means I owe them about AUD$130. But then let’s say the Aussie dollar falls off a cliff, down to about US50c.

I still owe them US$100, but suddenly that’s now worth AUD$200. So my debts have ballooned, even though nothing has changed except the exchange rate.

And this is what is happening in Turkey.

This chart here is a little hard to make out, but it shows foreign-currency denominated debt as a percent of GDP. Turkey is streaks ahead at around 70% of GDP. Ouch.

What’s worse, they don’t have much foreign currency reserves to tide them over or prop up the currency. It’s worse than in Argentina.

On top of all that, you’ve then got a political situation that doesn’t inspire much confidence. President Recep Erdogan reckons it’s all a ‘foreign plot’ to destabilise Turkey. There may be some truth to it, since it was Trump’s tariffs that sparked the whole mess for Turkey. But still, it doesn’t sound like a politician ready to take responsibility for the mess he’s in.

(I know! How unusual.)

And he does have to front up to some of the blame. His economic agenda has been to pump heaps of money into real estate development, mostly funded by off-shore borrowing. He has also eroded the integrity of Turkey’s economic institutions. After the last election, he appointed his son-in-law as the head of the finance ministry, and took personal responsibility for appointing the central bank’s governing council.

So Turkey is in a mess and nobody thinks they can get out of it.

What a disaster!

And so as Turkey goes over a cliff, everyone is wondering where the next domino to fall will be. Italy, Spain, Germany, Europe???

This could be the ruin of the global economy.

I was certainly working myself in to a state over it. I could barely get through my second plate of prawns.

But then I saw this chart.

This tracks foreign bank exposure to Turkish debt.

So the story here is that it’s Spanish banks that are going to bare the brunt of it. Most other banks are fine.

Spain is alarming. That charts saying that 25% of Spanish bank capital is exposed to Turkey, which does seem staggering.

But then France and Italy have little more than 5%, and when you get to the US, it’s sweet FA.

So most nations can roll with it without major dramas.

Spain however, does seem to be in trouble.

But I’m also relaxed about that too. Spain has been in trouble for a while. There’s not going to be any surprises there. All of Spain’s creditors knew they were taking on risk, and so should (I hope!) have been planning accordingly.

So the worse case scenario is that Turkey goes up in flames, Spain goes into recession, and the rest of the world muddles on.